Wage competition with heterogeneous workers and firms

Wage competition with heterogeneous workers and firms

Wage competition with heterogeneous workers and firms

We study imperfect competition in the labor market when both
workers and firms are heterogeneous. When firms cannot observe
workers’ skill, firms pay workers equal wages, but workers absorb
training costs. When firms can identify worker types, firms pay
different net wages to different workers. Voters select the level of
general education that is financed by a lump-sum tax. Workers are on
average better off when firms can observe workers’ skill for a given
level of general human capital, but the median voter prefers a higher
level of general human capital when firms cannot observe worker
types

Abstract

We study imperfect competition in the labor market when both
workers and firms are heterogeneous. When firms cannot observe
workers’ skill, firms pay workers equal wages, but workers absorb
training costs. When firms can identify worker types, firms pay
different net wages to different workers. Voters select the level of
general education that is financed by a lump-sum tax. Workers are on
average better off when firms can observe workers’ skill for a given
level of general human capital, but the median voter prefers a higher
level of general human capital when firms cannot observe worker
types